In the Matter of the Petition of

CONOVER-MAST PUBLICATIONS, INC.

for a review of proposed denial of second-class mailing privileges.

H.E. Docket No. 5/173

William A. Duvall Hearing Officer

POST OFFICE DEPARTMENT, OFFICE OF THE CHIEF HEARING EXAMINER, Washington 25, D.C.

HEARING OFFICER'S REPORT AND RECOMMENDATION

On May 2, 1957, Conover-Mast Publications, Inc., a New York Corporation, 205 East 42nd Street, New York 17, New York (hereinafter referred to as the Petitioner), filed an application (Respondent's Exhibit 1) for admission of the publication "Mill and Factory" to the mails as second-class matter.

The Director, Division of Postal Services, Bureau of Operations, Post Office Department (hereinafter referred to as the Respondent), advised the Petitioner on October 17, 1957, that he proposed to recommend denial of the Petitioner's application.

Thereafter, in response to a petition filed on November 1, 1957, a show-cause order was issued on November 5, 1957, in which it was ordered that the Respondent show cause why the proposed denial should not be reversed and the Petitioner's application granted. The answer to the show-cause order was filed on behalf of the Respondent on November 20, 1957, and the case was heard before the undersigned duly designated Hearing Officer on December 12, 1957. Proposed findings of fact, conclusions of law and reasons in support thereof have been filed on behalf of both parties.

The issues formed and joined by the pleadings in this case are as follows:

1. Does the magazine have a legitimate list of subscribers?

2. Is the magazine designed primarily for advertising purposes?

3. Is the magazine designed primarily for free circulation or for circulation at nominal rates?

At the hearing, Mr. Edwin A. Riley, the Respondent, first took the stand, and through him the following additional exhibits of the Respondent were received in evidence:

Exhibit                Description

1-A                   Comment by New York postmaster on evidence
                              submitted by publisher.

2                       A letter, dated May 2, 1957, signed by the
                              late Harvey Conover, then President of the
                              Petitioner, addressed to the postmaster at
                              New York, transmitting the application,
                              and photostatic copies of certain
                              documents.

3                       An invoice, dated May 22, 1957, from "Mill
                               and Factory" to the Acme Tool & Supply
                               Company of San Diego, California.

4                       May, 1957, issue of "Mill and Factory."

5                       Letter, dated May 15, 1957, signed by
                              Daniel G. Smith, Circulation Manager of
                              "Mill and Factory," relating to an
                              application for additional entry at East
                              Stroudsburg, Pennsylvania.

Mr. Riley testified briefly on the subscription rate of the publication, but the most important part of his testimony related to the method employed in the distribution of publications in general. This testimony will be presented later.

Mr. Conover, who was not represented at the hearing by counsel, next took the stand and presented the Petitioner's case. The substance of Mr. Conover's testimony is stated in the opening paragraph of his presentation (Tr. 27), in which he said that--

"*** under a logical and equitable interpretation of the postal law, 'Mill and Factory' is entitled to second-class mail privileges, and that failure to grant these privileges would, in my mind, be discriminatory. I will present evidence that, number one, 'Mill and Factory' is published for the dissemination of technical information that is of great value to engineers who are responsible for reducing costs and increasing productivity in American industry. That 'Mill and Factory' is not designed primarily for advertising purposes, and that under today's interpretation of the law by the Postal Department, 'Mill and Factory's' list subscriptions do not consist of free circulation, and its subscription rate is not nominal."

In connection with Mr. Conover's testimony the following exhibits were offered as evidence:

Exhibit                Description

1                       Map of the United States with dots to represent
                         "franchised-distributors" of "Mill and
                         Factory."

2                       "Mill and Factory" circulation list change
                         record for the month of November, 1957.

3                       ABC publisher's statement for magazine

                         "Industrial Distribution" for six months period
                         ending June 30, 1957.

4                       Typical business magazines with 2nd class
                         privileges, together with quantities of group
                         subscriptions - sold to companies in lots of
                         five or more.

5                       List illustrating the statement that quantity
                         subscription rates are often only half the
                         yearly rate.

6                       Results of survey made by "Machinery" magazine
                         as to factories which permit magazine
                         solicitation during business hours.

7                       Readership duplication between "Mill and
                         Factory" and "Factory" as revealed by Mills
                         Shepard Survey.

8                       ABC publisher's statement for magazine "Our
                         Sunday Visitor" for six months period ending
                         June 30, 1957, and a portion of a similar
                         statement for the magazine "Office Executive".
                         (This exhibit was withdrawn (Tr. 58), but was
                         permitted to accompany the record.)

9                       Typical association publications mailed at 2nd
                         class rates not permitting deduction from dues
                         for unwanted magazines.

10                     Letter to Mr. Conover, dated August 25, 1957,
                         from Paul W. Dowdell, Adjutant, Mamaroneck Post
                         No. 90, American Legion, Mamaroneck, New York.

11                     Portion of ABC publisher's statement concerning
                         "The American Legion Magazine."

Exhibit (cont'd.) Description (cont'd.)

12                      Photostat of Dun and Bradstreet bill. (This
                          exhibit was withdrawn (Tr. 65), but was
                          permitted to accompany the record.)

13                      Tabulation showing that "Mill and Factory"
                          maintains a lower percentage of advertising to
                          reading matter than "Factory Management &
                          Maintenance," its principal competitor, with
                          2nd class rates.

Respondent's counsel objected, and properly so, to the receipt in evidence of all of the above exhibits except numbers 1 and 2. However, since Mr. Conover was representing the Petitioner, since he had no legal training, because he was making, in effect, his oral argument as well as his direct testimony, and because a full record was desirable for the benefit of reviewing authorities in this first case to be tried on these issues, the exhibits shown above, except those which were withdrawn, were received in evidence by virtue of the authority in Section 201.40(v) of the Rules of Practice which provides, in part, that the rules of evidence may be relaxed to such an extent as the Hearing Officer may deem proper to insure an adequate and fair hearing. Other exhibits (numbers 14 through 35) were offered by the Petitioner, but they were excluded because of their irrelevancy, immateriality or incompetency, or all of them. The Petitioner was permitted to submit these exhibits and have them accompany the record.

The statute governing this proceeding is codified at Section 226 of Title 39, United States Code, as follows:

226. Same; conditions admitting publications to. Except as otherwise provided by law, the conditions upon which a publication shall be admitted to the second class are as follows: First. It must regularly be issued at stated intervals, as frequently as four times a year, and bear a date of issue, and be numbered consecutively. Second. It must be issued from a known office of publication. Third, it must be formed of printed paper sheets, without board, cloth, leather, or other substantial binding, such as distinguish printed books for preservation from periodical publications: Provided, That publications produced by the stencil, mimeographed, or hectograph process or in imitation of typewriting shall not be regarded as printed within the meaning of this clause. Fourth. It must be originated and published for the dissemination of information of a public character, or devoted to literature, the sciences, arts, or some special industry, and having a legitimate list of subscribers. Nothing herein contained shall be so construed as to admit to the second class rate regular publications designed primarily for advertising purposes, or for free circulation, or for circulation at nominal rates . (Underscoring added.)

The first alleged ground for the proposed denial is that there is not a legitimate list of subscribers to the magazine.

Mr. Conover testified that as of the date of the hearing there were approximately 168 business concerns which subscribe to the magazine. Some of these concerns take two or three or more subscriptions in order that copies may be available to their executive and sales personnel. These companies also order additional copies to be sent to designated addressees, but this is a matter for later consideration. These 168 companies order for the use of their own personnel as many copies as they desire and they are billed at the usual rate of $1.20 per year for each such subscription (Tr. 31-34, 87-90, 107-108; Publisher's Exhibit 1).

There has been very little litigation in the courts on this point, but there is a criminal case, Myrick v. United States , 219 F. 1, 4, in which the term with which we are now concerned has been defined, as follows:

"The phrase 'a legitimate list of subscribers' evidently means a list of subscriptions taken at more than a nominal price, and the price must have been paid, or the subscriber, or someone in his behalf, be under obligation to pay the agreed price; and that subscriptions taken at a nominal price, or without price, do not answer the requirements of the statute in this particular and cannot be counted in making up a legitimate list."

The pertinent Departmental regulation on the subject provides that:

"Publications must have a list of persons who have subscribed by paying or promising to pay for copies to be received during a stated time." (Postal Manual, Section 132.225)

The 168 business concerns meet every qualification for subscribers established in the Myrick case and in the regulations of the Department and, when they are considered together, they constitute a legitimate list of subscribers. If there was some reason why these firms do not constitute a legitimate list of subscribers, the burden of establishing this fact was upon the Department, and proof of this charge was not presented at the hearing. Furthermore, the arguments on this point presented in Respondent's brief are not persuasive because of the fact that many of the 168 business firms buy multiple copies of the publication to be read by their own employees. If the Department intends to require that publisher's meet further qualification with respect to a "legitimate list of subscribers", the Department's regulations must be appropriately amended. When publishers have met the standards prescribed by the courts and by the published regulations of the Department, no more can be demanded of them.

For reasons which will become apparent later, it is deemed to be desirable to take up next the third issue in the case, namely, whether the publication is designed primarily for free circulation or for circulation at nominal rates.

In addition to subscribing for two or three copies of the publication for the use of its own personnel, as indicated above, each of the 168 business firms sends to the publisher a list of names of persons to whom it is desired that the magazine be sent. The publisher sends the magazine to the designated addressees and later bills the companies for the number of copies so ordered. Mr. Conover referred to this system of distribution as "franchised paid circulation" (Tr. 29), and he described the operation of the system as follows:

"Subscriptions for 'Mill and Factory' are placed and paid for by a national network of companies distributing industrial labor and cost-saving machinery and equipment. These companies carefully maintain group subscription lists comprised of technical, production, and maintenance engineers in industry. The men placed on these subscription lists are personally known to the group subscribing organization to be responsible for and to have authority to improve manufactured products, increase productivity and reduce costs by adopting better methods and using better machinery in the plants in which they are employed. *** 'Mill and Factory' paid subscriptions are sent by the publisher direct to these readers. (Tr. 30-31)

* * * * * *

"The payment for subscriptions to 'Mill and Factory' is completely independent of any and all advertising appearing in the magazine. Permission to place group subscriptions is withdrawn by the publisher if the subscription list is not properly maintained, nor are these organizations that place group subscriptions for 'Mill and Factory' paid a fee for the extensive services they perform for the magazine, as in the case of newsstand and other magazine distributors. On the contrary, they pay 'Mill and Factory' $1.20 per year for each subscription on their group subscription list." (Tr. 35-36)

The application filed by the publisher (Respondent's Exhibit 1) indicates that of a total printing of 59,150 copies of the May, 1957, issue of "Mill and Factory," 51,305 copies, or roughly 87 percent of the total printing, were distributed in accordance with the system described above. There is some testimony that some subscriptions are received from individuals (Tr. 31), but the number of such subscriptions necessarily is small.

In connection with this facet of the case, Mr. Riley testified as follows (Tr. 16-17):

Q Is there any objection, under the applicable regulations of the Department to a publisher having a minor part of his subscriptions devoted to gift or so-called bulk subscriptions?

A No, sir.

Q And has it been the practice of the Department over the many years in which the law has been applied to accept for entry a magazine which---or rather, whose bulk subscriptions, so-called, are limited to a minor segment of the overall?

A The practice has been to accept them.

Q But when it exceeds that so-called minor phase to become the major part of the subscription arrangement, then the entry would have been, and has been, denied?

A That has been our practice.

Q That's been your uniform practice over the years?

A Yes, sir.

The regulations of the Department pertaining to this issue provide, in part, as follows:

"Publications designed primarily for free circulation may not qualify for second-class privileges. Publications that are not circulated principally to a list of subscribers are considered to be designed for free circulation." (Postal Manual, Section 132.227, underscoring added.)

"A minor portion of the subscription list may consist of persons whose subscriptions were paid for as gifts. Subscriptions paid for by advertisers or other interested persons to promote their own interests are not gift subscriptions." (Postal Manual, Section 132.463, underscoring added.)

The testimony of Mr. Conover and the figures taken from Respondent's Exhibit 1 make it clear that approximately 87 percent of the copies of the publication are distributed without cost to the ultimate recipient. It is, thus, equally clear that the magazine is not circulated "principally" to the list of subscribers, and the number of copies which are distributed through the "franchised paid circulation" system far exceeds a "minor" proportion of the printing of each issue.

With respect to the Department's regulations, Mr. Conover's position was that they are either too technical or that they are outmoded (Tr. 80, 83). In this connection, the Supreme Court said in the case of Boske v. Comingore , 177 U. S. 459, that "Those who insist that such a regulation [one established by the head of a governmental department] is invalid must makes its invalidity so manifest that the court has no choice except to hold that the Secretary has exceeded his authority and employed means that are not at all appropriate to the end specified in the act." Furthermore, it has long been the rule that a regulation prescribed by a department of the Government has the force and effect of law when not inconsistent with the statute under which it is promulgated. ( Latgis v. United States , 97 F. 2d) 588; Rosen v. United States , 245 U. S. 467)

On this proposition it is pointed out that appropriate regulations have been in effect for many years, and they have been modified with the passage of time to meet changing situations. Upon the basis of this record, the required showing of invalidity with respect to the Department's regulations has not been made.

The last issue to be determined is whether the magazine is designed primarily for advertising purposes.

The copy of the magazine in evidence consists of 356 pages excluding the front and back cover pages. The content is made up of:

1. The Survey of the Month - A survey conducted by the publishers of the extent of the use of materials handling equipment;

2. An Editorial - An essay pointing out the advantages of using materials handling equipment and of employing a materials handling expert;

3. Feature Articles - Eighteen articles on a wide variety of subjects which would be of interest to industrial management, production, engineering and maintenance personnel;

4. Departments - Brief, newsy items under the categories of Eye-Openers, Maintenance Shorts, Laborgrams, Short-Cuts and Kinks, Cost-Cutting Aids, Industry in the News, New Products, New Literature, Engineering Data File, Calendar of Events and Advertisers' Index;

5. A large volume of advertising matter;

6. Free Information Service, hereinafter more fully discussed.

Approximately 90 percent of the back cover of Respondent's Exhibit 4 is devoted to an advertisement of products of Firth Sterling, Inc., and immediately under this advertisement are the words "distributed by THE A. J. GLESENER CO., INC., 975 Bryant Street, San Francisco 3, Calif."

Under all or nearly all advertisements in the magazine and under all the items discussed concerning "New Literature" and "New Products" is a number. Opposite pages 154 and 346 are tear-out post cards which the publishers call the "Reader-Service Cards." On each card are numbers which relate to the numbers shown under advertisements, new literature and new products. The reader is advised to encircle on each card the number which corresponds to the number under the item about which he desires more information. The card is then mailed to the publishers at the publishers' expense. The publishers then contact the manufacturers or authors of the material desired, and the latter furnish the reader with the desired information. This service is available with respect to the products of concerns which advertise in the magazine and very many which do not.

To complete the picture of the operation of this publication it is necessary once more to advert to the 168 "franchise paid circulation" distributors. With each of these business concerns there is a separate advertising contract. Under the terms of these contracts the name of each firm appears on the outside back cover in a manner similar to that described above for the A. J. Glesener Company. This meant that for the May, 1957, issue of "Mill and Factory" there were 168 different outside back covers. Copies of the magazine were sent to persons designated by A. J. Glesener Company and the subscription rate for these copies was paid by that company. The same is true for each of the other 167 concerns. In other words, a product is advertised on the back cover of the magazine and the donee of the subscription to the magazine is told that the product is distributed by the donor of the magazine.

Mr. Conover stressed repeatedly with sincerity and conviction throughout his testimony that the purposes of the magazine is in accord with the overall intent of Congress in enacting legislation providing special rates of postage for second-class mail matter - that purpose being the dissemination of useful information. He stated that the magazine has long been recognized as one of America's leading technical magazines; that a staff of twelve editors travels thousands of miles each year to confer with specialists and to be able to pass on to the readers valuable information; and that "Mill and Factory" is one of the major means by which American industry keeps informed of new and improved methods that increase output per hour and raise the quality of manufactured products and reduce costs. Mr. Conover testified that he had been in the business of publishing trade, industrial or specialized business magazines for thirty years and that he had been the head and chairman of National Business Publications, the largest association of trade, technical, scientific and professional publications in the country.

With respect to the "franchise paid circulation" system of distribution, Mr. Conover testified, in effect, that it is a tool by means of which the aforementioned intent of Congress is put into effect. He stated that the distributors are required to keep their lists of recipients of the magazine up to date by removing non-readers and adding new production and technical personnel as recipients in the area served. In addition, he continued, "Mill and Factory" communicates directly with each recipient and removes from the circulation list those who do not furnish written evidence that the magazine is being read regularly and found useful.

All of these factors, in Mr. Conover's view, make it obligatory upon the Department to grant the Petitioner's application.

The regulations of the Department pertinent to this issue are as follows (Section 132.226, Postal Manual):

132.226 Advertising Publications. Publications designed primarily for advertising purposes may not qualify for second-class privileges. They include:

a. Those having advertising in excess of 75 percent in more than one-half of their issues during any 12-month period.

b. Those owned or controlled by individuals or business concerns and conducted as an auxiliary to and essentially for the advancement of the main business or calling of those who own or control them.

c. Those that consist principally of advertising and editorial write-ups of the advertisers.

d. Those that consist principally of advertising and that have only a token list of subscribers, the circulation being mainly free.

e. Those that have only a token list of subscribers and that print advertisements free for advertisers who pay for copies to be sent to a list of persons furnished by the advertisers.

f. Those published under a license from individuals or institutions and that feature other businesses of the licensor.

It is believed that the importance of this case warrants a statement of the legislative history of the phrase "designed primarily for advertising purposes." Source material will be found in Appendix A.

Briefly, the history of this provision of law may be stated along the following lines. Prior to 1874, postage on newspapers and periodicals mailed might be paid at the office of mailing or at the office of delivery. By the Act of June 3, 1874, postage on newspapers and periodicals was made payable in advance at the office of mailing and the amount of postage on such mail matter was considerably reduced.

Persons engaged in various businesses saw an opportunity to advertise their services or products through the mails at very low cost, and published or caused to be published certain sheets or bulletins containing the desired advertising matter. These publications were issued with sufficient regularity to make them eligible for entry into the mails as newspapers or periodicals under the then existing state of the law. Because it was felt that this practice was a perversion of the statute and the postal service to uses not intended, it was sought to distinguish between these publications and publications the purpose of which it was to inform, educate or entertain, or any combination of them.

Thus it was that on July 12, 1876, in a Departmental appropriation bill, a special and higher rate of postage was fixed for certain third-class matter, including "regular publications designed primarily for advertising purposes, or for free circulation, or for circulation at nominal rates." It was thought that the enactment of this provision would resolve the problem, but this was not the case. Advertisers of goods and services sought to circumvent the new legislation by including in their publications more material of a "public information" character and by minimizing, quantitatively, the advertising material contained in each issue.

The Department again called the attention of the Congress to the situation and on March 3, 1879, there was approved another Act in which mail classifications and rates were established. After prerequisites for entry into the mails as second-class matter were set forth, the exception with which we now are concerned was enacted as a proviso in the provisions of law now codified in Section 226 of Title 39, United States Code.

During the whole of this time, and subsequently to the present day, the Department has sought to devise a definition sufficiently broad to encompass the many variations in types of such publications but sufficiently precise to make it a simple matter to determine whether any publication goes beyond the pale into the proscribed areas. For evidence of the continuing effort of the Department to this end reference is made to Appendices A and B. Appendix A further justifies the conclusion that each publication about which the question arises is to be considered on its own merits based upon the facts and circumstances surrounding its issuance.

It appears to be the position of the publisher that so long as a publication contains information of value, questions concerning the motives, methods and circumstances of sale and distribution of the publication are immaterial and should be disregarded. The legislative history of the phrase with which we are now concerned, however, sharply conflicts with this position. (See, for example, Item 5, Appendix A.)

It is conceded that an argument can be made that, based upon the information available at the time the Act of July 12, 1876, was passed, as reflected in the data contained in Appendix A, that Act was enacted because persons engaged in business were resorting to the subterfuge of publishing sheets carrying their own advertisements and excluding the advertisements of other persons or firms, thereby taking advantage of the very favorable postage rates provided for newspapers and periodicals. The legislation is much too broadly phrased, however, to lend any validity to such an argument. If that had been the purpose of the legislation it would have been an easy matter to spell out exactly what was intended to be proscribed. Despite the fact that there were called to the attention of the Congress specific examples of the type referred to above, the language employed by Congress was very general. It has remained so. Under these circumstances, it is reasonable to conclude that it was the entire practice which the Congress sought to limit. This conclusion is further buttressed by the fact that the Department, from time to time, has broadened its regulations to include different expedients employed to circumvent the statute and the Congress has never legislated to circumscribe the Department's efforts in this regard. Appendix B to this report consists of copies of the Department's regulations on this subject for various years after the enactment of the 1876 and 1879 Acts. It is obvious that the emphasis has been on extending the scope of the regulations to include a greater number of the devices employed to try to get publications within the letter of the law. There is no question but that an overzealous administration of the law by the Department would have brought forth remedial legislation by the Congress. Hence, giving to the words employed by the Congress the meaning ascribed to them in normal, ordinary usage ( N.L.R.B. v. Coca-Cola Bottling Co. of Louisville , 350 U. S. 264), it is concluded that the Congress intended that publications be analyzed with a view to determining their real purpose, and if, in fact, that purpose be primarily to advertise - for the publisher, for any other person or entity, or for any group or groups of persons or entities of common, similar or diverse interests - then the publication should not be carried at the low second-class postage rate.

Let us now examine a few other statements made in all candor by Mr. Conover:

"In other words, that advertisement indicates that the Glesener Company is a distributor of Firth Sterling Products, and anyone who wants to buy Firth Sterling Products gets in touch with Glesener Company. (Tr. 20)

"I have no intention of maintaining that these companies derive no benefit from placing group subscriptions for 'Mill and Factory'." (Tr. 36)

"Well, I make the statement in the record that we make no claim whatever that the man who subscribes to the magazine doesn't do it for a selfish interest any more than the company that subscribes for his employees doesn't do it for a selfish interest. He hopes he will benefit, just as the company hopes they will benefit." (Tr. 91)

"Well, that is why we have sectional advertising. In other words, we will run one of our magazines -- we run a sectional advertising out on the West Coast. The reason we do that is because the advertiser out on the West Coast just has his activity there." (Tr. 93)

After the hearing in this case, word was received that Mr. Conover and members of his family and the operator of his boat were missing at sea following a severe storm and are presumed to be lost. It is not inappropriate here to express sincere regret over this tragedy and to state that it is certain that Mr. Conover's loss will be a severe blow to the publishing enterprise of which he was the President, the Association with which he had been connected as President and Chairman, and the business publications field in general. His action in seeking second-class mail privileges for "Mill and Factory" in no way is subject to criticism. On the contrary, this action is a testimonial to his business acumen which prompted him to undertake all legitimate means to obtain for his publication the highest possible revenues at the lowest possible operating costs. His presentation of his views at the hearing was made with forthrightness, clarity and conviction. He had sincere differences of opinion with the Respondent as to the issues in this case and he availed himself of the procedures legally provided for the resolution of these issues. It is my view that it was the sincere desire of the Petitioner's President to disseminate useful and practical scientific and technical information in "Mill and Factory." On the other hand, however, the conclusion appears to be inevitable that he fell into unintentional error in the selection of the method of achieving this purpose insofar as obtaining second-class mail privileges is concerned, and that this method is in conflict with the governing statute. The so-called "distributors" are the conduits through which the publication achieves nearly 87 percent of its circulation, and the purpose or incentive of these "distributors" clearly is to create good will for their businesses and to sell the particular products advertised over their names on the back cover of the magazine. When this advertising motive or incentive plays such a pre-eminent and vital part in the make-up, sale, distribution and overall operation of a publication, its primary design is apparent. In this connection, another contributing element, not of itself a determining consideration, is the fact that advertising comprises nearly 70 percent of the contents of the publication.

Based upon a review of the testimony and exhibits in this case, and upon a study of the legislative history of the provisions of law involved, I make the following findings of fact, conclusion of law and recommendation. Proposed findings and conclusions submitted by the parties not adopted herein are denied for reasons heretofore indicated.

FINDINGS OF FACT

1. The publication "Mill and Factory" has a legitimate list of subscribers.

2. The publication "Mill and Factory" is designed primarily for free circulation.

3. The publication "Mill and Factory" is designed primarily for advertising purposes.

CONCLUSION OF LAW

The publication "Mill and Factory" does not meet the requirements of Section 14 of the Act of March 3, 1879, as amended (39 U.S.C. 226), for entry into the mails as second-class matter.

RECOMMENDATION

It is recommended that the application of Conover-Mast Publications, Inc., for entry into the mails as second-class matter of the publication "Mill and Factory" be denied.